SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
OR
/ / Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NUMBER 0-24708
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AMCON DISTRIBUTING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of Incorporation)
10228 "L" Street
Omaha, NE 68127
(Address of principal executive offices)
(Zip Code)
47-0702918
(I.R.S. Employer Identification No.)
(402) 331-3727
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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The Registrant had 2,445,903 shares of its $.01 par value common stock
outstanding as of April 30, 1997.
Form 10-Q
2nd
Quarter
INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
---------------------
Balance sheets at March 31, 1997
and at September 30, 1996 3
Statements of income for the three and six-month
periods ended March 31, 1997 and March 31, 1996 4
Statements of cash flows for the three and six-month
periods ended March 31, 1997 and March 31, 1996 5
Notes to unaudited financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
11
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMCON Distributing Company
Balance Sheets
March 31, 1997 and September 30, 1996
- --------------------------------------------------------------------------------
- -
(Unaudited)
March 31, September
30,
1997 1996
-----------
- -------------
ASSETS
Current assets:
Cash $ 24,672 $ 21,497
Marketable securities 149,250
148,113
Accounts receivable, less allowance
for doubtful accounts of $203,505
and $195,961 9,873,989
10,344,002
Note and interest receivable from officer 125,083
144,695
Inventories 7,107,186
6,849,515
Deferred income taxes 75,209
75,209
Other 107,068
164,777
------------
- ------------
Total current assets 17,462,457
17,747,808
Fixed assets, net 3,673,620
3,033,257
Investments 396,848
843,375
Other assets 898,436
1,401,153
------------
- ------------
$ 22,431,361 $
23,025,593
============
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,498,178 $
4,102,868
Accrued expenses 582,065
675,958
Accrued wages, salaries and bonuses 426,659
459,873
Income taxes payable 795,309
643,568
Current portion of long-term debt 340,995
293,665
------------
- ------------
Total current liabilities 7,643,206
6,175,932
------------
- ------------
Deferred income taxes 91,685
276,556
Long-term debt, less current portion 8,421,619
9,951,495
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized, none and 250,000 shares
issued and outstanding at March 31, 1997
and September 30, 1996, respectively -
2,500
Common stock, $.01 par value, 5,000,000
shares authorized, 2,450,000 shares
issued and outstanding 24,500
24,500
Additional paid-in capital 2,213,828
3,411,328
Unrealized gain on investments available-
for-sale, net of $103,356 and $288,227 tax 142,730
398,028
Retained earnings 3,907,108
2,798,569
------------
- ------------
6,288,166
6,634,925
Less treasury stock, 4,097 shares, at cost (13,315)
(13,315)
------------
- ------------
Total shareholders' equity 6,274,851
6,621,610
------------
- ------------
$ 22,431,361 $
23,025,593
============
============
The accompanying notes are an integral part of these financial statements.
AMCON Distributing Company
Statements of Income
for the three and six months ended March 31, 1997 and 1996
(Unaudited)
- --------------------------------------------------------------------------------
- ----
For the three months For the
six months
ended March 31 ended
March 31
-------------------------
- --------------------------
1997 1996
1997 1996
----------- -----------
- ------------ -----------
Sales (including excise taxes
of $9.9 million and $9.2 million,
and $19.7 million and $18.9
million, respectively) $40,020,268 $39,509,118
$81,395,529 $80,775,224
Cost of sales 35,648,916 35,097,370
72,333,114 71,201,368
----------- -----------
- ----------- -----------
Gross profit 4,371,352 4,411,748
9,062,415 9,573,856
Selling, general and
administrative expenses 3,803,024 3,995,285
7,600,886 8,180,221
Depreciation and amortization 213,745 200,227
410,709 384,712
----------- -----------
- ----------- -----------
Income from operations 354,583 216,236
1,050,820 1,008,923
Other expense (income):
Interest expense 199,061 295,848
391,866 602,810
Other expense (income), net (67,482) 39,131
(1,219,927) (35,733)
----------- -----------
- ----------- -----------
Income(loss) before income taxes 223,004 (118,743)
1,878,881
441,846
Income tax (benefit) expense 91,431 (49,872)
770,341 185,575
----------- -----------
- ----------- -----------
Net (loss) income 131,573 (68,871)
1,108,540 256,271
Accretion of preferred stock - 25,000
- - 50,000
----------- -----------
- ----------- -----------
Net income (loss) attributable
to common shareholders $ 131,573 $ (93,871) $
1,108,540 $ 206,271
=========== ===========
=========== ===========
Earnings (loss) per common and
common equivalent share
attributable to common
shareholders $ 0.05 $ ($0.04) $
0.45 $ 0.08
=========== ===========
=========== ===========
Weighted average common and
common equivalent shares
outstanding 2,451,529 2,462,632
2,450,080 2,464,260
=========== ===========
=========== ===========
The accompanying notes are an integral part of these financial
statements.
AMCON Distributing Company
Statements of Cash Flows
for the six months ended March 31, 1997 and 1996
(Unaudited)
- --------------------------------------------------------------------------------
- ----
1997 1996
-----------
- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,108,540 $
256,271
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 410,709
384,712
(Gain) loss on sales of fixed assets, and
trading securities (52,950)
8,923
Gain on sale of Denver beer distributorship
(1,102,205) -
Purchases of trading securities -
(14,825)
Proceeds from sale of trading securities 24,600
13,518
Changes in assets and liabilities:
Accounts receivable 33,380
43,526
Inventories (695,919)
(66,222)
Other current assets 57,709
(75,825)
Other assets (22,497)
(36,000)
Accounts payable 1,395,310
556,027
Accrued expenses and accrued wages,
salaries, and bonuses (127,107)
135,695
Income taxes payable 151,741
(54,064)
-----------
- -----------
Net cash provided by operating activities 1,181,311
1,151,736
-----------
- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (516,508)
(367,704)
Purchases of water bottling company assets
(456,705) -
Proceeds from sales of fixed assets 71,662
64,891
Proceeds from sales of available-for-sale securities
33,967 -
Proceeds from sale of Denver beer distributorship
2,371,994 -
-----------
- -----------
Net cash provided by (used in) investing activities 1,504,410
(302,813)
-----------
- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 363,961
105,400
Net (payments) proceeds on bank credit agreement (1,662,244)
(362,965)
Payments on long-term and subordinated debt (184,263)
(565,337)
Redemption of preferred stock
(1,200,000) -
-----------
- -----------
Net cash used in financing activities (2,682,546)
(822,902)
-----------
- -----------
Net increase (decrease)in cash 3,175
26,021
Cash, beginning of period 21,497
14,597
-----------
- -----------
Cash, end of period $ 24,672 $
40,618
===========
===========
The accompanying notes are an integral part of these financial statements.
AMCON Distributing Company
Notes to Financial Statements
March 31, 1997 and 1996
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements of AMCON Distributing Company
(the "Company") have been prepared on the same basis as the audited financial
statements for the year ended September 30, 1996, and, in the opinion of
management, contain all adjustments necessary to fairly present the financial
information included therein, such adjustments consist of normal recurring
items. It is suggested that these financial statements be read in conjunction
with the audited financial statements and notes thereto, for the fiscal year
ended September 30, 1996, which are included in the Company's Annual Report to
Stockholders filed with Form 10-K. Results for the interim period are not
necessarily indicative of results to be expected for the entire year.
2. NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS:
Net income attributable to common shareholders was computed under the treasury
stock method using the weighted average number of common shares and dilutive
common stock equivalent shares outstanding during the period. Earnings used
in the calculation for the three and six months ended March 31, 1996 are
reduced by accretion on preferred stock.
3. SALE OF BEER DISTRIBUTORSHIP
On October 4, 1996, the Company sold its beer distributorship assets located
in Denver, Colorado for $2.4 million. The gain associated with the sale was
$1,102,000. The Company's operating expenses associated with closing the
Denver facility were $250,000 during the six months ended March 31, 1997.
4. PURCHASE OF WATER BOTTLING ASSETS
On November 18, 1996, the Company purchased the equipment, inventory,
trademarks and franchises of a water bottling company. The Company moved the
equipment to one of its existing distribution facilities and began bottling
water, under the American Star label, for sale to its customers and other
wholesale distributors in January 1997. The cost of the water bottling assets
plus moving and installation charges was $499,000. The acquisition was
financed with borrowings under the Company's revolving credit facility with a
bank (the "Facility").
5. REDEMPTION OF PREFERRED STOCK
On December 23, 1996, the Company redeemed all 250,000 shares of Series A
Cumulative Redeemable Convertible Preferred Stock at a price of $4.80 per
share or $1,200,000. The Company redeemed the Preferred Stock in order to
avoid the future payment of the 12% cumulative dividend associated with the
Preferred Stock that would accrue after December 23, 1996. The redemption was
financed with borrowings under the Facility.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Comparison of the three-month and six-month periods ended March 31, 1997 and
March 31, 1996
Sales for the three months ended March 31, 1997 increased 1.3% to $40.0
million, compared to $39.5 million for the same period in prior fiscal year.
Beer and beverage sales related to the Denver facility declined $1.6 million
during the second quarter as compared to the prior year as a result of the
sale of the operation in October 1996. Sales from the core distribution
business during the second quarter increased by $2.1 million over the prior
year as follows: Cigarette sales increased $973,000 primarily due to price
increases over the prior year. Food service sales increased $225,000
primarily due to increased sales related to the Company's branded food service
program. Tobacco sales increased $345,000, candy sales increased $228,000 and
all other product sales increased by $366,000 due to increase in the demand
for such products from the customer base.
Sales for the six months ended March 31, 1997 increased 0.8% to $81.4 million
compared to $80.8 million for the six months ended March 31, 1996. Beer and
beverage sales related to the Denver facility declined $2.7 million during
the six months ended March 31, 1997 as compared to the same period in the
prior year as a result of the sale of the operation in October 1996. Sales
from the core distribution business during the six months ended March 31, 1997
increased by $3.4 million over the prior year as follows: Cigarette sales
increased $1.3 million primarily due to price increases over the prior year.
Food service sales increased $499,000 primarily due to increased sales related
to the Company's branded food service program. Tobacco sales increased
$566,000, candy sales increased $514,000 and all other product sales increased
by $548,000 due to increase in the demand for such products from the customer
base.
Gross profit decreased 0.9% to $4.37 million for the three months ended March
31, 1997 from $4.41 million over the same period during the prior year. Gross
profit as a percent of sales declined to 10.9% for the quarter ended March 31,
1997 compared to 11.2% for the quarter ended March 31, 1996. The decrease in
gross profit was primarily attributable to the sale of the Denver beer
distributorship which accounted for a $284,000 reduction in gross profit.
Gross profit decreased 5.3% to $9.1 million for the six months ended March 31,
1997 from $9.6 million over the same period during fiscal 1996. As a percent
of sales, gross profit declined to 11.1% for the six months ended March 31,
1997 compared to 11.8% for the six month ended March 31, 1996. The decrease
in gross margin was primarily attributable to the sale of the Denver beer
distributorship which accounted for a $725,000 reduction in gross profit, and
a $367,000 or 12.8% reduction in purchase discounts from cigarette
manufacturers on the Company's private label cigarettes. These reductions in
gross profit were offset by a $581,000 increase in gross profit from the increas
ed sales of cigarettes, tobacco, food service and other products.
Sales of the Company's private label cigarette have continued to decline since
1993 when cigarette manufacturers substantially reduced the price of premium
brand cigarettes. Management anticipates that the volume of private label
cigarettes could continue to decline by as much as 10% to 20%. If such a
decline is realized, gross profit from private label cigarette sales could
decrease annually by $150,000 to $300,000 in fiscal 1997 and 1998.
Total operating expense, which includes selling, general and administrative
expenses and depreciation and amortization, decreased 4.3% or $179,000 to $4.0
million for the quarter ended March 31, 1997 compared to the same period in
fiscal 1996. The decrease was primarily due to the sale of the Denver beer
distributorship and the subsequent closing of the Denver facility which
accounted for a reduction in operating expenses of $370,000. This reduction
was offset by an increase of $191,000 in operating expense by the other
distribution centers which was incurred to support the increase in sales. As
a percentage of sales, total operating expense decreased to 10.0% from 10.6%
during the same period in the prior year.
For the six month period ended March 31, 1997, total operating expense
decreased 6.5% or $553,000 to $8.0 million, compared to the same period in the
prior year. The decrease was primarily due to the sale of the Denver beer
distributorship and the subsequent closing of the Denver facility which
accounted for a reduction in operating expenses of $802,000. This reduction
was offset by an increase of $249,000 in operating expense by the other
distribution centers which was incurred to support the increase in sales. As
a percentage of sales, total operating expense for the six months ended March
31, 1997 decreased to 9.8% from 10.6% during the same period in the prior
year.
As a result of the above, income from operations for the quarter ended March
31, 1997 increased $138,000 to $355,000. Income from operations for the six
month period ended March 31, 1997 increased $42,000 to $1,051,000.
Interest expense for the three months ended March 31, 1997 decreased 32.7%, or
$97,000, over the same period in the prior year. Interest expense for the six
month period ended March 31, 1997 decreased 35.0%, or $211,000, compared to
the six month period ended March 31, 1996. The decrease was primarily due to
a $2.8 million and $4.0 million reduction in the average amount borrowed under
the Company's revolving credit facility with a bank (the "Facility") during
the three and six month periods ended March 31, 1997, respectively.
Notwithstanding the $499,000 borrowed to finance the purchase and installation
of the water bottling assets from November 1996 through January 1997 and the
$1.2 million borrowed to finance the purchase of the Company's outstanding
preferred stock in December 1996, the Company was able to reduce average
borrowings under the Facility as a result of the cash generated from the sale
of the Denver beer distributorship during the first quarter of fiscal 1997 and
the sale of a building in the fourth quarter of fiscal 1996.
Other income of $67,000 for the three months ended March 31, 1997 consisted of
gains on sales of fixed assets, recovery of prior years discounts from
non-cigarette manufacturers, increase in market value of trading securities
and other miscellaneous items, the majority of which are not expected to
recur. Other income for the six months ended March 31, 1997 was generated
primarily by the gain associated with the sale of the Denver beer
distributorship of $1.1 million.
As a result of the above factors, net income attributable to common
shareholders during the three months ended March 31, 1997 was $131,573
compared to a net loss of $93,872 for the three months ended March 31, 1996.
Net income attributable to common shareholders during the six months ended
March 31, 1997 was $1,108,540 compared to $206,270 for the six months ended
March 31, 1996.
As described in Management's Discussion and Analysis in the Company's Annual
Report to Shareholders for the Fiscal Year Ended September 30, 1996, the
Company's operating income is subject to a number of factors which are beyond
the control of management, such as changes in manufacturers' cigarette pricing
which affects the market for generic and private label cigarettes. The
Company continues to remain dependent on cigarette sales which represent
approximately 66% of its revenue. Net income remains heavily dependent on
sales of the Company's private label cigarettes and volume discounts received
in connection with such sales. The Company continues to evaluate various steps
it may take to improve net income in future periods, including acquisitions of
distributing companies and continued sales of assets that are no longer
essential to its primary business activities, such as, marketable securities,
investments and certain real estate. An analysis of such assets held at March
31, 1997 is as follows:
ESTIMATE OF GAIN
-------------------------------
March 31, September 30,
DESCRIPTION OF ASSET 1997 1996
-------------------- ------------ -------------
Investments (available-for-sale) $245,000 $686,000
Condominium & furnishings 450,000 450,000
Investments consist of 83,000 and 86,500 shares of Cayman Water Company
Limited (CWC), a public company which is listed on NASDAQ, at March 31, 1997
and September 30, 1996, respectively. The Company's basis in the securities
was $151,000 and $157,000 and the fair market value of the securities was
$396,000 and $843,000 on March 31, 1997 and September 30, 1996, respectively.
The fair market value of the securities on April 30, 1997 was $602,000.
During the six months ended March 31, 1997, the Company sold 3,500 shares of
CWC and recognized a gain of approximately $28,000.
The condominium and furnishings consist of a condominium in the Cayman Islands
which is used in furtherance of the Company's business marketing strategies.
The costs and benefits associated with retaining the condominium are being
evaluated in relation to the current business strategies of the Company.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended March 31, 1997, the Company increased cash flow
from operating activities through increases in accounts payable due to
additions to the cigarette inventory to supply quarter end promotions offered
by cigarette manufacturers. Cash was provided by investing activities through
the sale of the Denver, Colorado beer distributorship for $2.4 million and was
utilized in investing activities during the six month period ended March 31,
1997 primarily to purchase and install water bottling assets for $499,000 and
to purchase additional delivery vehicles. Cash was utilized in financing
activities to make payments on the Facility and to redeem all of the Company's
outstanding Preferred Stock.
The Company had working capital of approximately $9.8 million as of March 31,
1997 compared to $11.6 million as of September 30, 1996. The Company's debt
to equity ratio was 2.57 at March 31, 1997 compared to 2.48 at September 30,
1996.
The Facility allows the Company to borrow up to $10 million at any time with
an option to borrow up to an additional $3 million for a period of 90 days.
The Company may exercise this option up to twice per year. As of March 31,
1997, the Company had borrowed approximately $7.7 million under the Facility.
The Company also maintains a $1,250,000 non-revolving line of credit used to
finance the purchase of trucks and delivery equipment. Advances against the
non-revolving line of credit were $855,000 through March 31, 1997. The amount
available on the non-revolving line of credit was $395,000 at March 31, 1997.
The line of credit is secured by a first lien on the delivery vehicles
purchased with the loan proceeds.
The Company believes that funds generated from operations, supplemented as
necessary with funds available under the Facility and the non-revolving line
of credit, will provide sufficient liquidity to cover its debt service and any
reasonably foreseeable future working capital and capital expenditure
requirements.
CONCERNING FORWARD LOOKING STATEMENTS
This Quarterly Report, including the Management's Discussion and Analysis and
other sections, contains forward looking statements that are subject to risks
and uncertainties and which reflect management's current beliefs and estimates
of future economic circumstances, industry conditions, company performance and
financial results. Forward looking statements include information concerning
the possible or assumed future results of operations of the Company and those
statements preceded by, followed by or include the words "future," "position,"
"anticipate(s)," "expect," "believe(s)," "see," "plan," "further improve,"
"outlook," "should" or similar expressions. For these statements, we claim
the protection of the safe harbor for forward looking statements contained in
the Private Securities Litigation Reform Act of 1995. You should understand
that the following important factors, in addition to those discussed elsewhere
in this document, could affect the future results of the Company and could
cause those results to differ materially from those expressed in our forward
looking statements: changing market conditions with regard to cigarettes and
the demand for the Company's products, domestic regulatory risks, competitive
and other risks over which the Company has little or no control. Any changes
in such factors could result in significantly different results.
Consequently, future results may differ from management's expectations.
Moreover, past financial performance should not be considered a reliable
indicator of future performance.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). SFAS 123 establishes financial
accounting and reporting standards for stock-based employee compensation plans
and transactions in which goods or services are the consideration received for
the issuance of equity instruments. This statement requires that an
employer's financial statements include certain disclosures about stock-based
compensation regardless of the method used to account for them. Adoption is
required for fiscal years beginning after December 15, 1995, the Company's
Fiscal 1997 or earlier. The Company is accounting for its stock-based
employee compensation plans and transactions in accordance with Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees."
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement on
Form
S-1 (Registration No. 33-82848) filed on August 15, 1994)
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-1 (Registration No.
33-82848)
filed on August 15, 1994)
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 of the Company's Registration Statement on Form S-1 (Registration
No. 33-82848) filed on August 15, 1994)
11.1 Statement re: computation of per share earnings
27.0 Financial Data Schedules
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended March 31,
1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
AMCON DISTRIBUTING COMPANY
(registrant)
Date: May 7, 1997 Kathleen M. Evans
----------------- -------------------------
Kathleen M. Evans
President & CEO and
Principal Executive Officer
Date: May 7, 1997 Michael D. James
----------------- -------------------------
Michael D. James
Treasurer & CFO and
Principal Financial and
Accounting Officer